Community Support Requirement

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 936

[No. 97-39]

RIN 3069-AA35

Community Support Requirement

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is amending

its regulation on the community support requirement. The rule replaces

the existing review process with uniform community support standards

all Federal Home Loan Bank (FHLBank) members must meet in order to

maintain access to long-term FHLBank advances, and review criteria the

Finance Board must apply when determining a member's compliance with

the standards. Consistent with the goals of the Regulatory Reinvention

Initiative of the National Performance Review, the rule streamlines the

regulatory requirements to reduce the time spent by FHLBank members to

prepare and submit, and the Finance Board to review and process,

community support submissions.

EFFECTIVE DATE: The final rule will become effective June 30, 1997.

FOR FURTHER INFORMATION CONTACT: Penny S. Bates, Program Analyst,

Community Support Program, Office of Supervision, 202/408-2574, or,

Janice A. Kaye, Attorney-Advisor, Office of General Counsel, 202/408-

2505, Federal Housing Finance Board, 1777 F Street, N.W., Washington,

D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

Section 10(g)(1) of the Federal Home Loan Bank Act (Bank Act)

requires the Finance Board to promulgate regulations establishing

standards of community investment or service that FHLBank members must

meet in order to maintain access to long-term advances. See 12 U.S.C.

1430(g)(1). The regulations promulgated by the Finance Board must take

into account factors such as the FHLBank member's performance under the

Community Reinvestment Act of 1977 (CRA), 12 U.S.C. 2901, et seq., and

record of lending to first-time homebuyers. See 12 U.S.C. 1430(g)(2).

In November 1996, the Finance Board published for notice and

comment a proposed rule that would streamline the current regulatory

requirements by replacing the existing community support review process

with uniform standards and review criteria for determining compliance

with section 10(g) of the Bank Act. See 61 FR 60229 (Nov. 27, 1996).

The 60-day public comment period closed on January 27, 1997. See id.

The Finance Board received a total of 56 comments in response to the

proposed rule, 13 from FHLBanks, 14 from credit unions, 9 from credit

union trade associations, 7 from financial institutions other than

credit unions, 5 from trade associations representing financial

institutions other than credit unions, 3 from insurance companies, 1

from an insurance company trade association, 2 from community groups,

and 1 each from a state banking commissioner and an individual. Most of

the commenters supported streamlining the community support process by

implementing uniform standards members must meet, and review criteria

the Finance Board must apply, in order for members to maintain access

to long-term advances. Specific comments are discussed in Part II of

the Supplementary Information.

II. Analysis of Public Comments and the Final Rule

A. Community Support Requirement

1. Selection For Community Support Review

Section 936.2(a) establishes the basic requirement that a FHLBank

member selected for community support review must submit a community

support statement (statement) to the Finance Board. Two commenters

thought the Finance Board should select a member for review only after

it has applied for a long-term advance. The Finance Board views the

requirement imposed by section 10(g) of the Bank Act, i.e., that

members must meet standards of community investment or service

established by the Finance Board in order to maintain access to a

service of the FHLBanks--long-term advances, as an obligation of

FHLBank membership, regardless of whether the member has borrowed or

plans to borrow long-term advances.

The rule provides that the Finance Board will select approximately

one-eighth of the members in each FHLBank district for community

support review each calendar quarter so that it will review each

FHLBank member about once every two years. Two commenters suggested

decreasing the frequency of community support review. The Finance Board

believes a two-year review cycle is appropriate both for administrative

convenience and because the streamlined review process has minimized to

the fullest extent possible the compliance burden on members. Four

commenters supported the statement in the preamble to the proposed rule

that the Finance Board will review an institution only after it has

been a FHLBank member for one year.

2. Notice Provisions

Section 936.2(b) sets out the notice requirements and the deadline

by which members must submit statements to the Finance Board for

review. Section 936.2(b)(1)(i) requires the Finance Board to notify

each FHLBank of the members within its district that must submit a

statement during the calendar quarter. At the same time, the Finance

Board must publish a notice in the Federal Register that includes the

name and address of each member required to

[[Page 28984]]

submit a statement during the calendar quarter, and the deadline for

submission of the statement to the Finance Board. To provide sufficient

time for the member to prepare the required statement, the deadline for

submission to the Finance Board must be no less than 45 calendar days

from the date of publication of the Federal Register notice. Two

commenters suggested extending the deadline for statement submission

from 45 to 60 days after the date of publication of the Federal

Register notice. On the basis of past experience and in light of the

significantly reduced documentation requirements, the Finance Board

believes that the time period provided in the rule is adequate.

Section 936.2(b)(2)(ii) requires each FHLBank to provide written

notice to its members of their selection for community support review

and of the requirement to submit a statement to the Finance Board by

the deadline stated in the Federal Register notice. Two commenters

suggested requiring notice to members concurrent with publication of

the Federal Register notice. Since the time provided for submission of

statements is adequate, concurrent notice is not required. Two

commenters opposed any FHLBank role in the community support process.

The Finance Board believes the FHLBanks' limited role, i.e., notifying

members of their selection for community support review, is appropriate

because it does not place the FHLBanks in a regulatory or supervisory

role, but does provides an opportunity for the FHLBanks to offer

information about community lending programs and assistance in

preparing statements.

3. Required Documents

Section 936.2(c) requires a member to submit to the Finance Board a

statement and any other information the Finance Board may require to

determine whether the member meets the community support standards.

Three commenters suggested permitting members to submit statements

electronically. The Finance Board will permit members to submit

statements electronically upon establishment of an Internet address for

such submissions. The Finance Board will include the electronic mail

address on the Community Support Statement Form (Form) as soon as it is

available.

Section 10(g)(2) of the Bank Act requires the Finance Board to take

into account a FHLBank member's performance under the CRA. See 12

U.S.C. 1430(g)(2); supra part I. To streamline the review process, the

proposed rule would have required members to submit the portion of the

public disclosure section of the most recent CRA evaluation provided by

the member's appropriate federal financial supervisory agency that

contains its CRA rating and the date of the CRA evaluation. Twelve

commenters supported reliance on a member's federal CRA rating. One

commenter suggested using also state CRA ratings. The Finance Board has

decided to rely only upon federal CRA ratings in order to maintain a

uniform standard. To eliminate duplicative documentation and reduce the

burden on members and the Finance Board, the final rule will not

require a member to submit its federal CRA rating since the Finance

Board is able to obtain the rating directly from the member's

appropriate federal financial supervisory agency. Two commenters

recommended this approach.

Pursuant to section 10(g)(2) of the Bank Act, the rule provides

that the Finance Board also shall consider a FHLBank member's record of

lending to first-time homebuyers. See 12 U.S.C. 1430(g)(2); supra part

I. The proposed rule revised the definition of ``first-time homebuyer''

in Sec. 936.1(l) to make it consistent with the definition of that term

in affordable housing statutes.1 Six commenters supported

the revised definition. Three commenters thought the definition was too

complex. The Finance Board believes the definition is appropriate as

written because it is substantially similar to the definitions used in

various other federal statutes that address housing issues.

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\1\ See, e.g., 42 U.S.C. 12713(b)(2), (3) (standards established

by the Cranston-Gonzalez National Affordable Housing Act that must

be used to determine eligibility under any federal program to assist

first-time homebuyers); 12 U.S.C. 1701x(d)(10)(H), (M) (U.S.

Department of Housing and Urban Development's assistance to low-and

moderate-income housing program); 42 U.S.C. 1472(h)(12)(B), (C)

(U.S. Department of Agriculture's program to provide loans for

housing and buildings on adequate farms).

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To minimize the burden on FHLBank members and the Finance Board,

Sec. 936.2(c)(2) requires a member to provide a brief description of

its record of lending, or of the assistance it provides, to first-time

homebuyers on the Form. Five commenters said the requirement for

certification of the Form by a member's board of directors would impose

an unnecessary administrative burden and delay the process. The Finance

Board agrees that the requirement is unnecessarily burdensome and has

deleted it from the final rule. Instead, the rule requires an

appropriate senior officer of the member to execute the Form. The

information required by the Form, which is included at Appendix A, is

discussed in detail below.

4. Public Comment Process

Section 936.2(d) permits members of the public to submit comments

concerning a member's community support performance to the Finance

Board at any time. The Finance Board will consider all public comments

it has received concerning a selected member in conducting its

community support review of that member. One commenter supported an

open-ended comment process. Four commenters thought the public comment

process was no longer necessary because it duplicates other available

public comment processes. The Finance Board believes providing the

opportunity for open-ended public comment is necessary and valuable

because it may provide useful information specific to community support

review.

Section 936.2(d)(1) requires each FHLBank to notify its Advisory

Council and nonprofit housing developers, community groups, and other

interested parties in its district of the members selected for

community support review. One commenter thought the rule should require

a FHLBank to provide notice only to its Advisory Council because the

cost of public notice was not justified by the number of comments

received and interested parties still received notice via the Federal

Register. The Finance Board disagrees because the costs imposed are not

excessive and the notice encourages the submission of public comments.

B. Community Support Standards

Section 936.3 establishes the community support standards a FHLBank

member must meet in order to maintain access to long-term advances, and

the review criteria the Finance Board must apply in evaluating a

member's community support performance. The Finance Board has included

standards and criteria for the two statutory factors--CRA performance

and record of lending to first-time homebuyers. Three commenters agreed

that the rule should establish standards only for the factors in

section 10(g) of the Bank Act. Twelve commenters argued that section

10(g) of the Bank Act does not require establishment of standards for

both or either CRA performance or lending to first-time homebuyers, or

only for those factors. Thirteen commenters said the Finance Board

should not establish a standard for factors other than those provided

in the Bank Act, such as violations of fair housing, equal credit

opportunity, or other laws that prohibit discrimination

[[Page 28985]]

in lending. Four commenters thought the Finance Board should review

information concerning illegal credit practices even though a member's

primary regulator already reviews and enforces such practices. For

instance, under the CRA regulation, a member's appropriate federal

financial supervisory agency must consider the member's response to

written complaints and the effect of evidence of discriminatory or

other illegal credit practices. See, e.g., 12 CFR 25.26(a)(5), 25.28(c)

(Office of the Comptroller of the Currency (OCC)). In order to limit

the burden imposed on members, the Finance Board has decided to

establish standards only for the two factors mentioned in the Bank Act.

Accordingly, Sec. 936.3(a) requires the Finance Board to take into

account both the CRA performance and record of lending to first-time

homebuyers of FHLBank members that are subject to the CRA, and only the

record of lending to first-time homebuyers of FHLBank members that are

not subject to the CRA.

1. CRA Standard

Section 936.3(b) establishes the CRA performance standard for

FHLBank members that are subject to the requirements of the CRA. Twelve

commenters supported application of the CRA standard only to members

that are subject to the CRA. Ten commenters supported applying the CRA

standard or a CRA-like standard to members that are not subject to the

CRA. As stated above, the Finance Board has determined not to formulate

a new CRA-like factor for members not subject to the CRA; rather, it is

adopting only those factors referenced in the Bank Act.

A member subject to the CRA will be deemed to meet the CRA

performance standard in the community support regulation if the rating

in the member's most recent federal CRA evaluation is ``outstanding''

or ``satisfactory.'' If the rating in a member's most recent federal

CRA evaluation is ``needs to improve,'' the Finance Board will place

the member on probation. The proposed rule provided for a one-year

probationary period. Seven commenters suggested extending the

probationary period since the period between CRA evaluations may be

longer than one year. The Finance Board agrees with the commenters and

the final rule provides that the probationary period will extend until

the member's next federal CRA evaluation. During the probationary

period, the member will be eligible to receive long-term advances. If

the member's federal CRA rating does not improve at the end of the

probationary period, the Finance Board will restrict the member's

access to long-term advances. One commenter recommended immediate

termination of access to long-term advances for a member with a ``needs

to improve'' CRA rating instead of probation. The Finance Board

believes that a member with a ``needs to improve'' CRA rating should be

given the opportunity to improve its performance. The Finance Board

also wants to distinguish between members with ``needs to improve'' and

``substantial noncompliance'' CRA ratings.

If the rating in a member's most recent federal CRA evaluation is

``substantial noncompliance,'' the Finance Board will immediately

restrict the member's access to long-term advances. Four commenters

suggested subjecting a member with a ``substantial noncompliance'' CRA

rating to a one-year probationary period rather than immediate

termination of access to long-term advances. One commenter said that

only members with prior unacceptable CRA ratings should be subject to

immediate termination. The Finance Board has considered these

arguments, but continues to believe that members with ``substantial

noncompliance'' CRA ratings have not met the CRA standard and, at least

in that respect, their activities are not advancing the mission of the

FHLBanks. In addition, the penalty for a member with a ``substantial

noncompliance'' CRA rating should be more severe than that imposed on a

member with a ``needs to improve'' CRA rating.

2. First-Time Homebuyer Standard

Section 936.3(c) establishes the first-time homebuyer performance

standard for all FHLBank members. This is consistent with the goals of

the National Homeownership Strategy and the Finance Board's commitments

under its National Partners For Homeownership Partnership Agreement.

Twelve commenters thought the proposed standard might be inconsistent

with their mission or applicable statutory or regulatory constraints,

as discussed more fully below. Seven commenters thought the Finance

Board should establish a third standard for members that might not be

able to meet the first-time homebuyer standard. To accommodate these

concerns, the Finance Board has included additional examples of

activities that will satisfy the first-time homebuyer standard in the

final rule and on the Form. These additions are discussed in detail

below. With the inclusion of additional, flexible criteria, the Finance

Board feels that all members should be able to meet the first-time

homebuyer standard.

Nine commenters thought the Finance Board should give more weight

to the CRA standard than the first-time homebuyer standard because CRA

review includes first-time homebuyer lending. Six of those commenters

suggested that a member that meets the CRA standard should be deemed to

meet the community support requirement, i.e., the member should not

also have to meet a separate first-time homebuyer standard. In

evaluating CRA compliance, a member's appropriate federal financial

supervisory agency must take into account some of the criteria the

Finance Board considers when reviewing a member's first-time homebuyer

performance, such as innovative or flexible lending practices and home-

mortgage loans to low- and moderate-income individuals. See, e.g., 12

CFR 25.22(b)(5), 22.5(b)(3)(i) (OCC). The Finance Board believes these

comments have merit and that it can place some reliance on the notion

that a member with an ``outstanding'' CRA rating will have performed

adequately in meeting the first-time homebuyer standard. Therefore, the

final rule provides that in the absence of public comments or other

information to the contrary, a member whose most recent federal CRA

rating is ``outstanding'' will be presumed to have met the first-time

homebuyer standard without a separate showing of compliance. If a

public comment or other information that may come to the attention of

the Finance Board raises concerns regarding the first-time homebuyer

performance of a member with an ``outstanding'' federal CRA rating, the

Finance Board may require the member to submit compliance information.

Eight commenters support allowing members to demonstrate compliance

with the first-time homebuyer standard in one of several ways. First, a

member that demonstrates to the satisfaction of the Finance Board that

it has an established record of lending to first-time homebuyers will

be deemed to meet the first-time homebuyer standard. In order to

demonstrate this aspect of first-time homebuyer performance, part II(A)

of the Form asks a member to provide the following information: (1) the

number of mortgage loans it has made to first-time homebuyers; (2) the

dollar amount of the mortgage loans it has made to first-time

homebuyers; (3) loans made to first-time homebuyers as a percentage of

all mortgage loans it has made; or (4) dollars loaned to first-time

homebuyers as a percentage of all mortgage dollars it has loaned. The

[[Page 28986]]

Finance Board specifically requested comments regarding establishment

of bright-line numerical thresholds for first-time homebuyer lending.

Twenty commenters opposed establishing either a numeric reporting

requirement or bright-line numerical thresholds. Fourteen commenters

said evaluation of first-time homebuyer performance should be on a

case-by-case basis, taking into account the member's market, resources,

and applicable statutory and regulatory constraints. Only two

commenters supported numerical thresholds. The Finance Board has not

established a numeric reporting requirement or bright-line numerical

thresholds in the final rule for two reasons. First, it will be

difficult for most members to collect accurate data regarding the

volume of first-time homebuyer loans. Second, reasonable, uniformly

applicable thresholds cannot easily be established due to the great

variety of FHLBank members in terms of institution size, location,

purpose, and function. For the same reasons the Finance Board did not

establish pass/fail criteria for the first-time homebuyer standard, as

suggested by four commenters.

A member also may satisfy the first-time homebuyer standard by

demonstrating to the satisfaction of the Finance Board that it has a

program under which it actively seeks to lend or support lending to

first-time homebuyers or to assist or support organizations that assist

potential first-time homebuyers to qualify for mortgage loans. In order

to demonstrate this alternative, part II(B) of the Form asks a member

to indicate whether it offers, participates in, or otherwise supports

special loan products, financial services, programs, or activities that

benefit, serve, or are targeted to, first-time homebuyers. Twelve

commenters suggested including additional examples of activities that

will satisfy the first-time homebuyer standard in the final rule and on

the Form. The Finance Board has incorporated these suggestions in the

following list of activities: (1) providing special credit products

with flexible underwriting or qualifying criteria, which includes non-

conforming loans; (2) participating in loan consortia for first-time

homebuyer loans or loans that serve predominately low- or moderate-

income borrowers; (3) participating in federal, state, or local

government homeownership or other related programs, like Federal

Housing Administration or Veterans Administration mortgage loan

programs; (4) participating in programs offered by community or

nonprofit groups or national organizations like the Federal National

Mortgage Association (also known as Fannie Mae) or the Federal Home

Loan Mortgage Corporation (also known as Freddie Mac); (5) providing,

participating in, or supporting counseling programs or other

homeownership education activities; (6) providing, participating in, or

supporting outreach programs; (7) providing technical assistance or

financial support to organizations that assist first-time homebuyers;

(8) investments or loans that support first-time homebuyer programs;

(9) holding mortgage-backed securities that may include a pool of loans

to low- and moderate-income homebuyers; (10) participating or investing

in service organizations that assist credit unions in providing

mortgages; or (11) participating in FHLBank community lending programs.

This list is meant to be illustrative, not exclusive.

A member may, but is not required to, attach to the Form a one-page

description of other first-time homebuyer programs or activities in

which it is involved. In the one-page attachment, a member may also

describe factors that may adversely affect its ability to assist first-

time homebuyers, like field of membership restrictions for credit

unions or business constraints applicable to insurance companies.

A member also may satisfy the first-time homebuyer standard if it

demonstrates to the satisfaction of the Finance Board that it meets a

combination of the elements discussed above. In response to several

comments, the Finance Board has clarified both the rule and the Form to

make clear that a member may meet the standard by meeting one, both, or

a combination of the factors described above.

If the Finance Board deems the evidence of first-time homebuyer

performance provided by the member to be unsatisfactory, the Finance

Board will place the member on probation for a one-year period. One

commenter suggested lengthening the probationary period. The Finance

Board believes that the time provided is sufficient for a member to

comply with the first-time homebuyer standard. During the probationary

period, the member will be eligible to receive long-term advances. If

the member does not satisfy the first-time homebuyer performance

standard before the probationary period ends, the Finance Board will

restrict the member's access to long-term advances. The Finance Board

will immediately restrict a member's access to long-term advances if

the member must show compliance with the first-time homebuyer standard

but fails to provide any evidence of its record of lending to first-

time homebuyers.

C. Decisions on Community Support Statements

Section 936.4 sets forth the procedures for review of statements by

the Finance Board. To ensure expeditious action on statements,

Sec. 936.4(a) requires the Finance Board to act on a statement within

75 calendar days of the date it deems the statement complete. To make

certain that the time period provided for review is not unduly

restrictive, the rule deems a statement complete, thus triggering the

75-day time period, only after the Finance Board has obtained all of

the information required by this part and any other information it

considers necessary to process the statement. The rule also permits the

Finance Board to stop the 75-day time period if it determines during

the review process and notifies the member in writing that additional

information is necessary to process the statement. The Finance Board

must restart the 75-day time period where it stopped upon receiving the

additional required information. The Finance Board will have an

additional 10 calendar days to process a statement if it receives

additional information on or after the seventieth day of the 75-day

time period.

Section 936.4(b) requires the Finance Board to notify a member and

the appropriate FHLBank in writing of its determination regarding the

member's statement. The notice will identify specifically the reasons

for the Finance Board's determination. One commenter supported the

requirement that the Finance Board provide specific reasons for its

determination.

D. Restrictions On Access To Long-Term Advances

1. Imposing Restrictions

Section 936.5 sets forth the procedures by which the Finance Board

may restrict a FHLBank member's access to long-term advances. One

commenter suggested clarifying the meaning of a restriction on access

to long-term advances. The Finance Board has added a definition at

Sec. 936.1(o). For purposes of this part, ``restriction on access to

long-term advances'' means a member may not borrow long-term advances

or renew any maturing advance for a term to maturity greater than one

year. One commenter thought the definition of the term ``long-term

advance,'' which means an advance with a term to maturity greater than

one year, should be the same for all purposes under the Bank Act. See,

e.g.,

[[Page 28987]]

12 CFR 935.1 (for purposes of the Finance Board's advances regulation,

the term ``long-term advance'' means an advance with a term to maturity

greater than five years). The meaning of the term ``long-term

advances'' for purposes of community support is the same in the

proposed rule as it was under the current community support regulation;

the Finance Board did not propose changing, nor has it changed, the

definition. The reasons underlying this definition are explained in

detail in the preamble to the adoption of the current rule. See 56 FR

58639, 58642 (Nov. 21, 1991). The Finance Board continues to believe

that it has the legal authority to interpret the same term differently

for different purposes in order to fulfill its statutory obligations.

See 12 U.S.C. 1422b(a)(1).

Under Sec. 936.5(a), the Finance Board will restrict a FHLBank

member's access to long-term advances if it determines that the member:

(1) Has not complied with the requirements of part 936;

(2) Has submitted a statement that was not approved by the Finance

Board;

(3) Has not received a CRA rating of ``outstanding'' or

``satisfactory'' at the end of the probationary period described in

Sec. 936.3(b)(2); or

(4) Has not provided first-time homebuyer evidence satisfactory to

the Finance Board before the end of the probationary period described

in Sec. 936.3(c)(2).

Under Sec. 936.5(b), the Finance Board promptly must notify a

member and the appropriate FHLBank of its determination to restrict the

member's access to long-term advances. The proposed rule provided that

the Finance Board would send the notice to the member by certified

mail, return receipt requested, and to the FHLBank by regular mail. Six

commenters said the FHLBanks should receive notice of a restriction

before the member so the FHLBank does not inadvertently provide long-

term advances to an ineligible borrower. To accommodate this concern,

the final rule provides that the Finance Board will notify the FHLBank

by facsimile and by regular mail.

Section 936.5(c) of the proposed rule provided that a restriction

on access to long-term advances would become effective automatically on

the date the decision notices are mailed. One commenter thought there

should be a 30-day delay before a restriction takes affect. The Finance

Board agrees that a 30-day delay is appropriate. The Finance Board's

goal is to encourage compliance with the community support requirement.

Past experience indicates that many members will comply with the

requirement upon receiving a 30-day notice. The 30-day period will also

allow the FHLBanks to take administrative steps that may be necessary

in order to restrict a member's access to long-term advances.

2. Removing Restrictions

Section 936.5(d) sets forth the bases for removing restrictions on

access to long-term advances imposed by the Finance Board under this

part. The Finance Board, in its sole discretion, may remove a

restriction on a member's access to long-term advances under two

circumstances. First, the Finance Board may remove a restriction if it

determines that application of the restriction may adversely affect the

safety and soundness of the member. Second, the Finance Board may

remove a restriction if it determines that the member subsequently has

complied with the requirements of part 936. The Finance Board has

eliminated the mandatory 180-day waiting period before reinstatement.

Six commenters supported the deletion while one commenter though the

waiting period should be at least two years. Since the Finance Board's

primary goal is to encourage FHLBank members to comply with the

community support regulation, removal of the waiting period is

appropriate.

The rule permits a member to submit a detailed written request to

the Finance Board to remove a restriction on access to long-term

advances. The Finance Board must consider these requests within 30

calendar days of receipt. If a member bases a reinstatement request on

safety and soundness concerns, the request must include a statement

from the member's primary federal regulator that application of the

restriction may adversely affect the safety and soundness of the

member.

In order to acknowledge a member's efforts to improve its CRA

performance, Sec. 936.5(d)(2) requires the Finance Board to place a

member on probation in accordance with Sec. 936.3(b)(2), if: (1) the

member's access to long-term advances was restricted on the basis of

the member's inadequate performance under the CRA standard, i.e., the

rating in the member's most recent federal CRA evaluation was

``substantial noncompliance;'' (2) the rating in the member's

subsequent CRA evaluation is ``needs to improve;'' and (3) the member

did not receive either a ``substantial noncompliance'' CRA rating or a

``needs to improve'' CRA rating immediately preceding the CRA rating on

which the member's inadequate performance under the CRA standard was

based.

To ensure that a FHLBank receives notice of the Finance Board's

decision to remove a restriction before the member, Sec. 936.5(d)(3) of

the final rule provides for notice to the FHLBanks by facsimile and by

regular mail. The proposed rule would have required the Finance Board

to send the notice to the member by certified mail, return receipt

requested, and to the FHLBank by regular mail. The Finance Board's

decision to remove a restriction will become effective automatically on

the date the decision notices are mailed.

3. Effect of Restrictions on the Affordable Housing and Community

Investment Programs

Under Sec. 936.5(e), if the Finance Board has restricted a member's

access to long-term advances under this part, the member will not be

eligible to participate in either the Affordable Housing Program (AHP)

or the Community Investment Program (CIP). Two commenters supported

imposing restrictions on access to AHP and CIP advances for members

that fail to meet the community support requirement. Six commenters

said a restriction should not be imposed because the member otherwise

could use the AHP and CIP to improve its community support performance.

However, the Finance Board continues to believe that it should not

offer a member the opportunity to participate in community lending

programs subsidized by the FHLBanks until the member has demonstrated a

willingness to use its own resources to meet community lending needs.

Accordingly, the final rule limits participation in the AHP and CIP

only to members that have met the community support requirement.

Four commenters said the rule should clarify that the restriction

applies only to AHP or CIP applications made after the date the

restriction is imposed and not to previously approved AHP or CIP

funding. The Finance Board has included clarifying language in the

final rule.

E. FHLBank Community Support Programs

Under Secs. 936.6 (a) and (b), each FHLBank must consult with its

Advisory Council to develop and implement initiatives to increase

community-oriented mortgage lending and affordable housing finance

activities. The rule also requires each FHLBank to establish and

maintain a community support program that: (1) provides technical

assistance to members; (2) promotes and expands community-oriented

mortgage lending and affordable housing finance; (3)

[[Page 28988]]

identifies opportunities for members to expand financial and credit

services in underserved neighborhoods and communities; and (4)

encourages members to increase their community-oriented mortgage

lending and affordable housing finance activities through the use of

monetary and nonmonetary incentives. Examples of appropriate incentives

include discounts or preferred terms on advances to members or awards

or technical assistance to nonprofit housing developers or community

groups that have outstanding records of participation in community-

oriented mortgage lending and affordable housing finance activities.

These examples are meant to be illustrative, not exclusive.

To provide motivation for FHLBank members to meet the community

support requirements, Sec. 936.5(c) requires each FHLBank to provide a

yearly report to its members that identifies AHP, CIP, and other

FHLBank activities, and summarizes community-oriented mortgage lending

and affordable housing finance activities undertaken by members,

nonprofit housing developers, community groups, or other entities in

the FHLBank district, that may provide opportunities for a member to

meet the community support requirements. Two commenters supported

reducing the frequency of required reports from twice to once a year.

F. Reports

Section 10(j)(11) of the Bank Act requires each FHLBank Advisory

Council to submit annually a report to the Finance Board analyzing the

low-income housing activity of its FHLBank. See 12 U.S.C. 1430(j)(11).

Since the concept of community support includes initiatives related to

affordable housing, the Finance Board believes that the annual report

each Advisory Council submits should include an analysis of the

community support program and activities of its FHLBank. The Finance

Board has included this requirement in Sec. 936.7.

Pursuant to section 10(j)(12) of the Bank Act, the Finance Board

annually must prepare and submit to Congress a report on FHLBank

support of, and use of advances for, low-income housing and community

development. See 12 U.S.C. 1430(j)(12)(A). The Finance Board's annual

report to Congress must include the annual Advisory Council reports to

the Finance Board on the low income housing activity of the FHLBanks.

Id. 1430(j)(12)(B). The Finance Board intends to include also in its

annual report to Congress an analysis of the FHLBanks community support

programs and activities.

III. Regulatory Flexibility Act

The final rule implements statutory requirements binding on all

FHLBank members, regardless of their size. The Finance Board is not at

liberty to make adjustments in those requirements to accommodate small

entities. The Finance Board has not imposed any additional regulatory

requirements that will have a disproportionate impact on small

entities. By streamlining the regulatory requirements, the Finance

Board has, to the maximum extent possible, reduced the costs FHLBank

members, the FHLBanks, and Finance Board will incur to produce, review,

and process the submissions the Finance Board requires to determine

whether a FHLBank member has complied with the community support

requirement. Thus, in accordance with the provisions of the Regulatory

Flexibility Act, the Finance Board hereby certifies that this final

rule will not have a significant economic impact on a substantial

number of small entities. See 5 U.S.C. 605(b).

IV. Paperwork Reduction Act

As part of the notice of proposed rulemaking, the Finance Board

published a request for comments concerning the collection of

information contained in Secs. 936.2 through 936.7 of the proposed

rule. See 61 FR 60233. The Finance Board received two comments. Both

commenters thought the reporting and recordkeeping burden might be

underestimated. The Finance Board continues to believe that the burden

estimates are accurate. The Finance Board also submitted an analysis of

the information collection to the Office of Management and Budget (OMB)

for review in accordance with section 3507(d) of the Paperwork

Reduction Act of 1995. See 44 U.S.C. 3507(d). OMB assigned a control

number, 3069-0003, and approved the information collection without

conditions with an expiration date of December 31, 1999. Potential

respondents are not required to respond to the collection of

information unless the regulation collecting the information displays a

currently valid control number assigned by the OMB. See id. 3512(a).

Although the final rule does not substantively or materially modify the

approved information collection, it reduces the reporting and

recordkeeping burden imposed on many respondents by eliminating the

requirement that members subject to the CRA submit portions of their

CRA evaluation, see 12 CFR 936.2(c)(1), and the submission of

information about first-time homebuyer activities for members with

``outstanding'' CRA ratings. See id. Sec. 936.3(c)(1). The title,

description of need and use, and a description of the information

collection requirements in the final rule are discussed in parts I and

II of the Supplementary Information.

The following table discloses the estimated annual reporting and

recordkeeping burden:

a. Number of respondents...........................................3000

b. Total annual responses..........................................3000

Percentage of these responses collected electronically...............0%

c. Total annual hours requested....................................4010

d. Current OMB inventory..........................................20475

e. Difference.....................................................16465

The estimated annual reporting and recordkeeping cost burden is:

a. Total annualized capital/startup costs.............................0

b. Total annual costs (O&M)...........................................0

c. Total annualized cost

requested...............................................$155,800.62

d. Current OMB inventory..............................................0

e. Difference...............................................$155,800.62

Any comments concerning the information collection should be submitted

to Elaine L. Baker, Executive Secretary, Federal Housing Finance Board,

1777 F Street, N.W., Washington, D.C. 20006, and the Office of

Information and Regulatory Affairs of the Office of Management and

Budget, Attention: Desk Officer for Federal Housing Finance Board,

Washington, D.C. 20503.

List of Subjects in 12 CFR Part 936

Credit, Federal home loan banks, Housing, Reporting and

recordkeeping requirements.

Accordingly, the Federal Housing Finance Board hereby revises title

12, chapter IX, part 936 of the Code of Federal Regulations to read as

follows:

PART 936--COMMUNITY SUPPORT REQUIREMENTS

Sec.

936.1 Definitions.

936.2 Community support requirement.

936.3 Community support standards.

936.4 Decision on community support statements.

936.5 Restrictions on access to long-term advances.

936.6 Bank community support programs.

936.7 Reports.

Authority: 12 U.S.C. 1422a(a)(3)(B), 1422b(a)(1), 1429, and

1430.

Sec. 936.1 Definitions.

For purposes of this part:

(a) Act means the Federal Home Loan Bank Act, as amended (12 U.S.C.

1421, et seq.).

(b) Advance has the same meaning as in Sec. 935.1 of this chapter.

[[Page 28989]]

(c) Advisory Council means the Advisory Council each Bank is

required to establish pursuant to section 10(j)(11) of the Act and part

960 of this chapter.

(d) Affordable Housing Program or AHP means the program each Bank

is required to establish pursuant to section 10(j) of the Act and part

960 of this chapter.

(e) Appropriate federal financial supervisory agency means the

Office of the Comptroller of the Currency for national banks; the Board

of Governors of the Federal Reserve System for state chartered banks

that are members of the Federal Reserve System and bank holding

companies; the Federal Deposit Insurance Corporation for state

chartered banks and savings banks that are not members of the Federal

Reserve System and the deposits of which are insured by the Federal

Deposit Insurance Corporation; and the Office of Thrift Supervision for

savings associations the deposits of which are insured by the Federal

Deposit Insurance Corporation and savings and loan holding companies.

(f) Bank or Banks means a Federal Home Loan Bank or the Federal

Home Loan Banks.

(g) Community Investment Program or CIP means the program each Bank

is required to establish pursuant to section 10(i) of the Act.

(h) Community-oriented mortgage lending has the same meaning as in

section 10(i)(2) of the Act.

(i) CRA means the Community Reinvestment Act of 1977, as amended

(12 U.S.C. 2901, et seq.).

(j) CRA evaluation means the public disclosure portion of the CRA

performance evaluation provided by a member's appropriate federal

financial supervisory agency.

(k) Finance Board means the agency established as the Federal

Housing Finance Board.

(l) First-time homebuyer means:

(1) An individual and his or her spouse, if any, who has had no

present ownership interest in a principal residence during the three-

year period prior to purchase of a principal residence.

(2) A displaced homemaker who, except for owning a residence with

his or her spouse or residing in a residence owned by his or her

spouse, meets the requirements of paragraph (l)(1) of this section. For

purposes of this paragraph (l)(2), the term displaced homemaker means

an adult who has not worked full-time, full-year in the labor force for

a number of years and, during that period, worked primarily without

remuneration to care for a home and family, and currently is unemployed

or underemployed and is experiencing difficulty in obtaining or

upgrading employment.

(3) A single parent who, except for owning a residence with his or

her spouse or residing in a residence owned by his or her spouse, meets

the requirements of paragraph (l)(1) of this section. For purposes of

this paragraph (l)(3), the term single parent means an individual who

is unmarried or legally separated from a spouse and has custody or

joint custody of one or more minor children or is pregnant.

(m) Long-term advance means an advance with a term to maturity

greater than one year.

(n) Member means an institution admitted to membership and owning

capital stock in a Bank.

(o) Restriction on access to long-term advances means a member may

not borrow long-term advances or renew any maturing advance for a term

to maturity greater than one year.

Sec. 936.2 Community support requirement.

(a) Selection for community support review. The Finance Board shall

select a member for community support review approximately once every

two years.

(b) Notice--(1) By the Finance Board. The Finance Board

concurrently shall:

(i) Notify each Bank of the members within its district that are

required to submit community support statements during the calendar

quarter; and

(ii) Publish a notice in the Federal Register that includes the

name and address of each member required to submit a community support

statement during the calendar quarter, and the deadline for submission

of the community support statement to the Finance Board. The deadline

for submission of a community support statement shall be no earlier

than 45 calendar days after the date of publication of the notice in

the Federal Register.

(2) By the Banks. Within 15 calendar days of the date of

publication in the Federal Register of the notice required by paragraph

(b)(1)(ii) of this section, a Bank shall provide written notice:

(i) To each member within its district that is named in the Federal

Register notice, that the member is required to submit a community

support statement to the Finance Board by the deadline stated in the

Federal Register notice; and

(ii) Its Advisory Council and nonprofit housing developers,

community groups, and other interested parties in its district of the

name and address of each member within its district that is required to

submit a community support statement during the calendar quarter.

(c) Required documents. Each member selected for community support

review shall submit a completed Community Support Statement Form

executed by an appropriate senior officer to the Finance Board and any

other information the Finance Board may require to determine whether a

member meets the community support standards.

(d) Public comments. In reviewing a member for compliance with the

community support requirement, the Finance Board shall take into

consideration any public comments it has received concerning the

member.

(The Office of Management and Budget approved the information

collection requirements contained in this section and assigned

control number 3069-0003 with an expiration date of December 31,

1999.)

Sec. 936.3 Community support standards.

(a) In general. In reviewing a community support statement, the

Finance Board shall take into account a member's performance under the

CRA if the member is subject to the requirements of the CRA, and the

member's record of lending to first-time homebuyers.

(b) CRA standard--(1) Adequate performance. A member that is

subject to the requirements of the CRA shall be deemed to meet the CRA

standard if the rating in the member's most recent CRA evaluation is

``outstanding'' or ``satisfactory.''

(2) Probationary performance. A member that is subject to the

requirements of the CRA shall be subject to a probationary period if

the rating in the member's most recent CRA evaluation is ``needs to

improve.'' The probationary period shall extend until the member's

appropriate federal financial supervisory agency completes its next CRA

evaluation and issues a rating. The member will be eligible to receive

long-term advances during the probationary period. If the member does

not meet the CRA standard at the end of the probationary period, the

Finance Board shall restrict the member's access to long-term advances

in accordance with Sec. 936.5.

(3) Inadequate performance. A member's access to long-term advances

shall be restricted in accordance with Sec. 936.5 if the rating in the

member's most recent CRA evaluation is ``substantial noncompliance.''

(c) First-time homebuyer standard--(1) Adequate performance. In the

absence of public comments or other information to the contrary, a

member shall be presumed to meet the first-time

[[Page 28990]]

homebuyer standard if the member is subject to the requirements of the

CRA and the rating in the member's most recent CRA evaluation is

``outstanding.'' In determining whether other members meet the first-

time homebuyer standard, the Finance Board shall consider a member's

description of its efforts to assist first-time or potential first-time

homebuyers or its explanation of factors that affect its ability to

assist first-time or potential first-time homebuyers. A member shall be

deemed to meet the first-time homebuyer standard if the member

otherwise demonstrates to the satisfaction of the Finance Board that

it:

(i) Has an established record of lending to first-time homebuyers;

or

(ii) Has a program whereby it actively seeks to lend or support

lending to first-time homebuyers, including, but not limited to, the

following:

(A) Providing special credit products with flexible underwriting

standards for first-time homebuyers;

(B) Participating in federal, state, or local government, or

nationwide homeownership lending programs that benefit, serve, or are

targeted to, first-time homebuyers;

(C) Participating in loan consortia for first-time homebuyer loans

or loans that serve predominantly low- or moderate-income borrowers; or

(iii) Has a program whereby it actively seeks to assist or support

organizations that assist potential first-time homebuyers to qualify

for mortgage loans, including, but not limited to, the following:

(A) Providing, participating in, or supporting special counseling

programs or other homeownership education activities that benefit,

serve, or are targeted to, first-time homebuyers;

(B) Providing or participating in marketing plans and related

outreach programs targeted to first-time homebuyers;

(C) Providing technical assistance of financial support to

organizations that assist first-time homebuyers;

(D) Participating with or financially supporting community or

nonprofit groups that assist first-time homebuyers;

(E) Holding investments or making loans that support first-time

homebuyer programs;

(F) Holding mortgage-backed securities that may include a pool of

loans to low- and moderate-income homebuyers;

(G) Participating or investing in service organizations that assist

credit unions in providing mortgages; or

(H) Participating in Bank community lending programs; or

(iv) Has any combination of the elements described in paragraphs

(c)(1)(i), (ii), or (iii) of this section.

(2) Probationary performance. If the evidence of first-time

homebuyer performance is deemed to be unsatisfactory by the Finance

Board, the member shall be subject to a one-year probationary period.

The member will be eligible to receive long-term advances during the

probationary period. If the member does not demonstrate compliance with

the first-time homebuyer standard before the probationary period ends,

the Finance Board shall restrict the member's access to long-term

advances in accordance with Sec. 936.5.

(3) Inadequate performance. A member's access to long-term advances

shall be restricted in accordance with Sec. 936.5 if the member

provides no evidence of first-time homebuyer performance.

(The Office of Management and Budget approved the information

collection requirements contained in this section and assigned

control number 3069-0003 with an expiration date of December 31,

1999.)

Sec. 936.4 Decision on community support statements.

(a) Action on community support statements. The Finance Board shall

act on each community support statement in accordance with the

requirements of Sec. 936.3 within 75 calendar days of the date the

Finance Board deems the community support statement to be complete. The

Finance Board shall deem a community support statement complete when it

has obtained all of the information required by this part and any other

information it deems necessary to process the community support

statement. If the Finance Board determines during the review process

that additional information is necessary to process the community

support statement, the Finance Board may deem the community support

statement incomplete and stop the 75-day time period by providing

written notice to the member. When the Finance Board receives the

additional information, it shall again deem the community support

statement complete and resume the 75-day time period where it stopped.

The Finance Board shall have 10 calendar days in addition to the 75-day

time period to act on a community support statement if the Finance

Board receives the additional information on or after the seventieth

day of the 75-day time period.

(b) Decision on community support statements. The Finance Board

shall provide written notice to the member and the member's Bank of its

determination regarding the community support statement submitted by

the member. The notice shall identify the reasons for the Finance

Board's determination.

Sec. 936.5 Restrictions on access to long-term advances.

(a) Requirement. The Finance Board shall restrict a member's access

to long-term advances if the member:

(1) Failed to comply with the requirements of this part;

(2) Submitted a community support statement that was not approved

by the Finance Board;

(3) Did not receive a rating in a CRA evaluation of ``outstanding''

or ``satisfactory'' at the end of the probationary period described in

Sec. 936.3(b)(2); or

(4) Failed to provide evidence satisfactory to the Finance Board of

its first-time homebuyer performance before the end of the probationary

period described in Sec. 936.3(c)(2).

(b) Notice. The Finance Board shall provide written notice to a

member and the member's Bank of its determination to restrict the

member's access to long-term advances, the member by certified mail,

return receipt requested, and the member's Bank by facsimile and by

regular mail.

(c) Effective date. Restrictions on access to long-term advances

shall take effect 30 days after the date the notices required under

paragraph (b) of this section are mailed unless the member complies

with the requirements of this part before the end of the 30-day period.

(d) Removing restrictions. (1) The Finance Board may remove

restrictions on a member's access to long-term advances imposed under

this section:

(i) If the Finance Board determines that application of the

restriction may adversely affect the safety and soundness of the

member. A member may submit a written request to the Finance Board to

remove a restriction on access to long-term advances under this

paragraph (d)(1)(i). Such written request submitted shall contain a

clear and concise statement of the basis for the request and a

statement from the member's appropriate federal financial supervisory

agency that application of the restriction may adversely affect the

safety and soundness of the member. The Finance Board shall consider

each written request within 30 calendar days of receipt.

(ii) If the Finance Board determines that the member subsequently

has complied with the requirements of this part. A member may submit a

written request to the Finance Board to remove a restriction on access

to long-term

[[Page 28991]]

advances under this paragraph (d)(1)(ii). Such written request shall

state with specificity how the member has complied with the

requirements of this part. The Finance Board shall consider each

written request within 30 calendar days of receipt.

(2) The Finance Board shall place a member on probation in

accordance with Sec. 936.3(b)(2), if:

(i) The member's access to long-term advances was restricted on the

basis of the member's inadequate performance under the CRA standard, as

described in Sec. 936.3(b)(3);

(ii) The rating in the member's subsequent CRA evaluation is

``needs to improve;'' and

(iii) The member did not receive either a ``substantial

noncompliance'' CRA rating or a ``needs to improve'' CRA rating

immediately preceding the CRA rating on which the member's inadequate

performance under the CRA standard was based.

(3) The Finance Board shall provide written notice to the member

and the member's Bank of its determination under this paragraph (d),

the member by certified mail, return receipt requested, and the

member's Bank by facsimile and by regular mail. The Finance Board's

determination shall take effect on the date the notices are mailed.

(e) AHP and CIP. A member that is subject to a restriction on

access to long-term advances under this part shall not be eligible to

participate in the Affordable Housing Program or the Community

Investment Program. The restriction in this paragraph (e) shall not

apply to AHP or CIP applications or funding approved before the date

the restriction is imposed.

(The Office of Management and Budget approved the information

collection requirements contained in this section and assigned

control number 3069-0003 with an expiration date of December 31,

1999.)

Sec. 936.6 Bank community support programs.

(a) Requirement. Consistent with the safe and sound operation of

the Bank, each Bank shall establish and maintain a community support

program. A Bank's community support program should:

(1) Provide technical assistance to members;

(2) Promote and expand community-oriented mortgage lending and

affordable housing finance;

(3) Identify opportunities for members to expand financial and

credit services in underserved neighborhoods and communities; and

(4) Encourage members to increase their community-oriented mortgage

lending and affordable housing finance activities by providing

incentives such as awards or technical assistance to nonprofit housing

developers or community groups with outstanding records of

participation in community-oriented lending or affordable housing

finance partnerships with members.

(b) Advisory Councils. A Bank shall consult with its Advisory

Council to develop and implement initiatives to increase community-

oriented mortgage lending and affordable housing finance activities in

the Bank district.

(c) Notice. A Bank shall provide annually to each of its members a

written notice:

(1) Identifying AHP, CIP, and other Bank activities that may

provide opportunities for a member to meet the community support

requirements; and

(2) Summarizing community-oriented mortgage lending and affordable

housing finance activities undertaken by members, nonprofit housing

developers, community groups, or other entities in the Bank's district,

that may provide opportunities for a member to meet the community

support requirements.

Sec. 936.7 Reports.

The annual report Advisory Councils are required to submit to the

Finance Board pursuant to section 10(j)(11) of the Act shall include an

analysis of the appropriate Bank's community support program and

activities.

By the Board of Directors of the Federal Housing Finance Board.

Bruce A. Morrison,

Chairperson.

Note: The following appendix will not appear in the Code of

Federal Regulations.

Appendix--Community Support Statement Form

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